We always hear that more than 70% of deals fail to achieve the expected deal value and the biggest cause is poor Post-merger integration (PMI). All top corporate executives have faced the challenges of PMI at least once in their career
When we look at the root cause we realise that the traditional approach towards integration has basic flaws.
With each deal, whether big or small, comes the challenge of post-merger integration (PMI). This is the where most companies really fail to execute well and it’s usually because they don’t put value creation at the core of their integration strategy.
There are a few common mistakes companies make in their approach to PMI:
- Success Not Linked To Value Creation: Successful integration should be defined as achieving the strategic and value creation .Companies focus on operational efficiency from day one but they forget the long term value creation process.
- Not Focussing on People & Retaining Talent: The ‘people part’ of integration is very subjective. Just integrating a pay roll system is not going to help. But, the involvement of new members from the acquired company, from the beginning, is key. For many reasons, most firms fail to do well here. They do a poor job on talent management ,culture alignment,and change management as part of their integration strategy.
- Learning From Previous Integrations: Lessons learned from previous deals are being forgotten. Organisations do not have purpose built M&A platforms. Therefore, they cannot capitalise on their experiences or share their learnings with the wider firm. Learnings and lessons are lost when staff leave the firm. This lack of M&A skills and experience within an organisation becomes problematic when Due Diligence and synergy is poorly tracked.
- Too Much Process: Sounds strange, but sometimes there’s too much focus on processes, checklists and unnecessary paperwork. In reality, this can be avoided if the firm uses an M&A platform where they can automate the M&A processes. This will increase transparency and improve the tracking on progress, allowing the team to concentrate more on value creation. It’s about capturing value and mitigating early risks … the process of course serves these objectives.
Now look at the key imperatives that will get you a Post-Merger Integration Success
Set yourself up to win, from the first step : Integration begins during decision making
- Define integrations principles – What are the objectives and philosophy of the merger?
- Find the right leadership teams, starting with the Integration Manager. Make sure to have integration talent on hand and ready.
- Design your PMI to reflect value creation, synergies and early risks. Remember, the details are the foundations of solid planning.
Essentially, it boils down to a choice between the following two statement. We know which one we prefer! What about you?
- Understand the basics principles of capturing the value VS creating value.
- Maximize cost synergies and plan rigorously for revenue synergies.
- Do not forget to capture the cost of Integration.
- Set the overall process to capture synergies in steps with focus on “Identifed”-“Secured”-“Realized” with clear roles & responsibilities.
Top-down synergies identified->Bottom up plans to capture->Implement & track->Monitor financial capture.